This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities.

/pdf/increasing-returns-and-long-run-growth-1wijc940aq.pdf

Increasing Returns and Long-Run Growth

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

/pdf/a-survey-of-corporate-governance-36f3yobhy4.pdf

The role of imperfect information in a principal-agent relationship subject to moral hazard is considered. A necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived, and a characterization of the optimal use of such information is given.

/pdf/moral-hazard-and-observability-719lvi5me9.pdf

Moral Hazard and Observability

This paper analyzes compensation schemes which pay according to an individual's ordinal rank in an organization rather than his output level. When workers are risk neutral, it is shown that wages based upon rank induce the same efficient allocation of resources as an incentive reward scheme based on individual output levels. Under some circumstances, risk-averse workers actually prefer to be paid on the basis of rank. In addition, if workers are heterogeneous inability, low-quality workers attempt to contaminate high-quality firms, resulting in adverse selection. However, if ability is known in advance, a competitive handicapping structure exists which allows all workers to compete efficiently in the same organization.

/pdf/rank-order-tournaments-as-optimum-labor-contracts-518ur1dagj.pdf

Rank-Order Tournaments as Optimum Labor Contracts

you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We enable the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact support@jstor.org. 1. INTRODUCTION One would suppose that in any economic system where equality is valued, progressive income taxation would be an important instrument of policy. Even in a highly socialist economy, where all who work are employed by the State, the shadow price of highly skilled labour should surely be considerably greater than the disposable income actually available to the labourer. In Western Europe and America, tax rates on both high and low incomes are widely and lengthily discussed3: but there is virtually no relevant economic theory to appeal to, despite the importance of the tax. Redistributive progressive taxation is usually related to a man's income (or, rather, his estimated income). One might obtain information about a man's income-earning potential from his apparent I.Q., the number of his degrees, his address, age or colour: but the natural, and one would suppose the most reliable, indicator of his income-earning potential is his income. As a result of using men's economic performance as evidence of their economic potentialities, complete equality of social marginal utilities of income ceases to be desirable, for the tax system that would bring about that result would completely discourage unpleasant work. The questions therefore arise what principles should govern an optimum income tax; what such a tax schedule would look like; and what degree of inequality would remain once it was established. The problem seems to be a rather difficult one even in the simplest cases. In this paper, I make the following simplifying assumptions: (1) Intertemporal problems are ignored. It is usual to levy income tax upon each year's income, with only limited possibilities of transferring one year's income to another for tax purposes. In an optimum system, one would no doubt wish …

/pdf/an-exploration-in-the-theory-of-optimum-income-taxation-4o16cwnc3i.pdf

An Exploration in the Theory of Optimum Income Taxation

set out the problem of using taxation and government production to maximize a social welfare function. We derived the first-order conditions, and considered the argument for efficiency in aggregate production. Here in Part II we consider the structure of optimal taxes in more detail. Part I contained five sections, and Part II begins at Section VI. In the sixth and seventh sections we consider commodity taxation in one- and many-consumer economies. In the eighth section we consider other kinds of taxes; and in the ninth, public consumption. In the tenth section we consider a rigorous treatment of the problem, giving a sufficient condition for the validity of the first-order conditions. To begin, we shall restate the notation and basic problem. Notation

Optimal Taxation and Public Production II: Tax Rules

Two kinds of models for a productive organization are presented. In the first, both production and rewards are based on the performance of individuals, which is perfectly observed. Their abilities are not observable. Despite this, theorems are proved giving strong grounds for the equality of wages and marginal products unless there is monopsony in the labor market. This latter case is also discussed. The second model, which focuses on the imperfect observation of performance, allows interesting deductions about optimal payment schedules and organizational structure.

The Optimal Structure of Incentives and Authority within an Organization

Project Appraisal and Planning for Developing Countries

Principal-agent models are studied, in which outcomes conditional on the agent's action are uncertain, and the agent's behaviour therefore unobservable. For a model with bounded agent's utility, conditions are given under which the first-best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes. For general models, it is shown that the solution may not always be obtained by using the agent's first-order conditions as constraint. General conditions of Lagrangean type are given for problems in which contracts are finite-dimensional. 1. THE MORAL HAZARD SITUATION

James A. Mirrlees

Papers

An Exploration in the Theory of Optimum Income Taxation

Optimal Taxation and Public Production II: Tax Rules

The Optimal Structure of Incentives and Authority within an Organization

Project Appraisal and Planning for Developing Countries

The Theory of Moral Hazard and Unobservable Behaviour: Part I